Businesses need to be up to speed on changes to capital allowances if they are to prosper, according to Richard Wherton, a partner at the Midlands office of national audit, tax and advisory firm Crowe Clark Whitehill.
“Maximising tax advantages could create vital extra cash,” he stressed.
“When the Chancellor announced he would reduce the rate of corporation tax to increase the attraction of the UK for multi-nationals, he said that he would pay for this by reducing certain tax reliefs like capital allowances,” noted Mr Wherton.
“However, capital allowances can be claimed both by companies that are benefiting from the cut in corporation tax rates and unincorporated businesses, like sole traders and partnerships, which have seen an increase in the top rate of tax to 50 per cent.
Mr Wherton continued: “Every business should pay attention to the changes to capital allowances and plan the timing of their capital expenditure. Businesses should review their budgets to maximise the tax advantages but should also consider the commercial sense of incurring expenditure.”
The Annual Investment Allowance (AIA), providing immediate tax relief for up to £100,000 per year of expenditure on plant and machinery, reduces to £25,000 next April. Therefore, business owners need to plan the timing of expenditure especially if their accounting year straddles the date change.
At the same time, the Writing Down Allowance (WDA) will reduce from 20 per cent (10 per cent for certain assets) to 18 per cent (eight per cent).
However, earlier this year, ‘short life’ was doubled to eight years and therefore short life asset (SLA) elections are set to become more popular. Providing the asset is sold or written off within eight years the business should claim full tax relief over its life.
“Compare this with assets that do not qualify for accelerated allowances and, where an SLA election has not been made, it will take the business at least 21 years to obtain full tax relief via the general pool,” said Mr Wherton.
“Other reliefs should be considered too. Do not forget that expenditure on ‘green’ plant and machinery, including certain cars, currently qualifies for immediate tax relief.”
And he added: “Cash is vital to any business and maximising the reliefs in the tax system will help the business to manage its tax payments and direct these funds into working capital to achieve growth and meet business objectives.”